A car dealer may arrange indirect financing for a customer to purchase a vehicle. Typically the financing is provided by a third party such as a financial institution or other lender. The dealer acts as the financial intermediary to facilitate the loan transaction. Based on the details of the vehicle sales transaction, the dealer calculates the size of the loan required. The dealer relays this information, along with other information from the customer needed to apply for the loan, to a financial institution. If the financial institution approves the loan, the dealer returns to the customer with the particular terms of the loan including the interest rate, term, and the payment schedule. For the interest rate, the dealer can select between one of several interest rates offered by the bank. The financial institution may offer compensation to the dealer in return for facilitating the loan from the financial institution. Such compensation may vary according to the interest rate selected for the loan. An increased amount of compensation is generally provided by the financial institution to the dealer for facilitating a loan transaction involving a higher interest rate.
In some cases there may be an option to buy down the interest rate to a lower interest rate. For example, where the customer purchases aftermarket products as part of the vehicle sales transaction, the dealer may have profits from the transaction to buy down the interest rate. Such aftermarket products may include, for example: extended warranties, tire and rim protection, key fob protection, vehicle armour protection, paint protection, life and disability insurance, and the like. The dealer may be able to incentivize the customer to purchase one or more of these additional products by offering to lower the interest rate for the customer (also referred to as “buying down” the interest rate). For example, the dealer may sell additional products to the customer and use some of the profits from the transaction to make a payment on the loan, thereby reducing the interest rate for the loan. The dealer benefits from the transaction by selling both the vehicle and one or more aftermarket products, and the customer benefits by being able to procure additional product(s) with financing at a lower interest rate.
Conventional methods of assessing and determining the terms of a financing transaction typically involve the dealer manually calculating the financing terms using pen and paper and/or a calculator. Such methods are cumbersome and time-consuming. In addition, if the customer requests a change to the transaction (e.g. the customer wants to add or remove a product), the dealer must manually recalculate the terms of the transaction. Given that this is a laborious process, and the dealer is typically operating under time constraints to negotiate a sale during a meeting with the customer, the customer may be provided with no or limited comparative financing options. The customer may not be interested in the particular option that is presented to him by the dealer. As a result, the dealer may lose out on the opportunity to complete the transaction or sell the customer additional products. Because of the extent of the required calculations, conventional methods may also be prone to human error, potentially leading to a loss in profits for the dealer.
In addition, because the calculated loan payment amounts for each interest rate depend on so many variables, and because the dealer is operating under the aforementioned time constraints in negotiating a sale, it can be generally difficult for the dealer to evaluate which interest rate should be selected for the customer and to evaluate to what extent the dealer may be able to buy down the interest rate if the customer selects certain aftermarket products to add to the transaction. In many cases the dealer simply must “eye-ball” the interest rates and determine generally, based on information that the dealer has in relation to the transaction (such as the customer's desired loan payment range and other variables), which interest rate the dealer should select as the starting interest rate. However, this technique may result in a less than optimal transaction for one or both of the parties, given that it relies to a certain extent on guesswork. As a result, the full range of options may not be evaluated. There is a desire to address these and other issues when arranging and negotiating the terms of an indirect financing transaction with a customer.
The foregoing examples of the related art and limitations related thereto are intended to be illustrative and not exclusive. Other limitations of the related art will become apparent to those of skill in the art upon a reading of the specification and a study of the drawings.